Richemont Departure Signals Fashion Is an Accessory

Shoppers look at clothing and accessories at a Chloe shop in Shanghai. Particularly disappointing has been Chloe, whose founder Gaby Aghion pioneered the concept of luxury pret-a-porter, or ready-to-wear, in the 1950s, becoming the first company to sell high fashion off the rack instead of tailored to individual customers. Photographer: Qilai Shen/Bloomberg

May 22 (Bloomberg) -- For luxury-goods maker Richemont,
clothing and bags are going out of fashion.

While Richemont last week reported a 30 percent gain in
annual profit as shoppers spent more on its Cartier jewelry and
IWC watches, leather goods and fashion brands such as Lancel and
Chloe have struggled. Earnings at Richemont’s so-called soft
luxury unit fell by more than half in the last fiscal year.

Chairman Johann Rupert last week said Richemont should have
been quicker to get rid of brands that disappoint. Yesterday,
the Geneva-based company announced the departure of Marty
Wikstrom, the head of the fashion and accessories business --
which accounts for less than a fifth of the company’s 10 billion
euros ($12.9 billion) in revenue.

“The fashion and leather goods piece of Richemont, as
opposed to the watch and jewelry business, doesn’t quite cut it
in many ways,” said Rahul Sharma, managing director of
consultant Neev Capital.

The declining fortunes of Richemont’s fashion brands and
Wikstrom’s departure have fueled speculation that Richemont may
sell the business, according to Jon Cox, an analyst at Kepler
Cheuvreux.

“Richemont made it clear last week that they will not be
quite so patient with underperforming businesses,” Cox said,
estimating Lancel and British leather-goods maker Alfred Dunhill
could fetch as much as 800 million euros. “Wikstrom may have
left because Richemont weren’t about to put resources into
expanding its soft-luxury business in a meaningful way.”

Growth Engines

Despite making Cartier and acquisitions like Van Cleef &
Arpels into growth engines, after years of building up fashion
and leather, Richemont’s profit from those businesses remains a
fraction of the 1.1 billion euros in operating income last year
at PPR SA’s Gucci brand.

The stock touched a record 92.70 Swiss francs and traded
1.3 percent lower at 91.30 francs at 2:28 p.m. in Zurich. The
stock has rallied 34 percent since April 23 when the company
indicated full-year net income rose more than analysts expected.

“Recent performance within key brands such as Dunhill,
Lancel and Chloe has been lackluster” during the end of
Richemont’s fiscal year, when rivals outperformed, said John
Guy, an analyst at Berenberg in London.

Richemont’s other businesses have compensated for the
fashion unit’s troubles. Its shares have more than quadrupled
since Wikstrom’s appointment, while PPR stock has tripled and
LVMH more than doubled.

50 Books

Any sale will probably fall to the company’s co-chief
executive officers, Bernard Fornas, who formerly led the Cartier
brand, and Richard Lepeu, who has also been Richemont’s chief
financial officer. Rupert, the founder and controlling
shareholder, last week said that in September he will start a
yearlong sabbatical to travel and plow through the 50 books on
his reading list.

In 2009, Richemont appointed Wikstrom, a 56-year-old former
Nordstrom Inc. executive who also managed Harrods department
store. “Marty’s appointment reaffirms Richemont’s commitment to
our fashion and leather goods,” Rupert said at the time.

Richemont said nothing about why Wikstrom is leaving, but
thanked her for her “many contributions” and said she had
helped position the business for future growth. Wikstrom has
served as a member of Richemont’s non-executive board since
2005, a position she’ll retain until September. She’s departing
the fashion unit immediately.

‘Great Terms’

Wikstrom is leaving “on great terms,” she said yesterday
in a telephone interview. “It’s been terrific,” she said,
adding that she left the business in a better state than when
she had joined it. “Richemont is a fantastic company.”

Wikstrom was hired to revamp the soft luxury unit, which
was struggling to turn a profit with Lancel, Dunhill, Chloe,
Hong Kong fashion house Shanghai Tang, and Parisian designer
Azzedine Alaia.

Particularly disappointing has been Chloe, whose founder
Gaby Aghion pioneered the concept of luxury pret-a-porter, or
ready-to-wear, in the 1950s, becoming the first company to sell
high fashion off the rack instead of tailored to individual
customers.

The label has never really recovered from the 2006
departure of Phoebe Philo, a designer who introduced hits such
as $700 Paddington bags. In 2009, Richemont froze the brand’s
planned store openings, then in 2011, Wikstrom named Clare
Waight Keller as creative director.

Moving Backward

Chloe “seems to have moved backward since it lost” Philo,
said Luca Solca, an analyst at Exane BNP Paribas in London.

Revenue at Lancel was “broadly flat” in Richemont’s most-recent fiscal year, hurt by the brand’s focus on France, the
company said last week. Richemont paid about 342 million Swiss
francs ($352 million) in 1997 for Lancel, which started selling
accessories and luggage in the early 1900s. Last year, Wikstrom
added Peter Millar LLC, a North Carolina-based sportswear maker,
only the third acquisition by Richemont during her tenure.

“You don’t buy Richemont for its fashion offering,” said
Mathew Menezes, an analyst at Avior Research in Johannesburg.
“I wouldn’t say the fashion business has been badly run, but it
has struggled.”

The business has gotten a sales boost from Net-a-Porter, a
Web store for luxury goods that Richemont bought in 2010. The
unit’s sales have grown faster than the rest of the company’s,
convincing Richemont to start selling brands such as Cartier and
Montblanc online. Net-a-Porter last year trimmed its loss by
half, to 19 million euros.

‘My Baby’

Rupert told analysts at a May 16 meeting that Richemont
doesn’t plan to buy any big companies. While watchmaker Panerai
and jeweler Van Cleef & Arpels, which Richemont purchased in the
early 2000s, have been a success, he said the company’s record
on acquisitions is mixed.

“We talk about Van Cleef and about my baby Panerai, but we
don’t talk about a load of rubbish that I also had a hand in
buying,” Rupert said. “OK, so we haven’t always been that
successful. Maybe we’ve got to cull our bad investments quicker.
Not maybe, we should.”

Wikstrom was quick to point out the rubbish “may not just
be in the fashion and accessories portfolio.”